Average Cost Optimality in Inventory Models with Dynamic Information Delays

IEEE Transactions on Automatic Control, Forthcoming

14 Pages Posted: 18 Apr 2008 Last revised: 14 Mar 2011

See all articles by Alain Bensoussan

Alain Bensoussan

University of Texas at Dallas - Naveen Jindal School of Management; Hong Kong Polytechnic University - Faculty of Business; Ajou University

M. Çakanyıldırım

University of Texas at Dallas - Naveen Jindal School of Management

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Mingzheng Wang

Zhejiang University--School of Management

Hanqin Zhang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences

Date Written: October 18, 2010

Abstract

Information delays exist when the most recent inventory information available to the Inventory Manager (IM) is dated. In other words, the IM observes only the inventory level that belongs to an earlier period. Such situations are not uncommon, and they arise when it takes a while to process the demand data and pass the results to the IM. In this paper, we establish that the average cost optimal policy is of state-dependent basestock type with respect to the reference inventory position. We show that the optimal base stock depends on the age and the magnitude of the latest observed delay. We illustrate the results by solving an example with delays of 0 and 1, for which we are able to obtain formulas/bounds for the basestock levels.

Keywords: dynamic information delays, partial observations, stochastic inventory, base stock policies, average cost optimality, ergodic problem, vanishing discount approach

JEL Classification: M11, C61

Suggested Citation

Bensoussan, Alain and Cakanyildirim, Metin and Sethi, Suresh and Wang, Mingzheng and Zhang, Hanqin, Average Cost Optimality in Inventory Models with Dynamic Information Delays (October 18, 2010). IEEE Transactions on Automatic Control, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1121440

Alain Bensoussan

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Rd
SM 30
Richardson, TX 75080-3021
United States
9728836117 (Phone)

HOME PAGE: http://www.utdallas.edu/~axb046100/

Hong Kong Polytechnic University - Faculty of Business

Dept SEEM
Systems Engr * Engr Mgmt
Hong Kong, Hong Kong
China

Ajou University ( email )

Ajou
France

Metin Cakanyildirim

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Mingzheng Wang

Zhejiang University--School of Management ( email )

No.866, Yu-Hang-Tang Road
Hangzhou, Zhejiang 310058
China

Hanqin Zhang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences ( email )

Zhong-Guan-Cun-Dong-Lu 55, Haidian District
Beijing, Beijing 100080
China

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